EUR/USD
The euro fell to the day’s lows against the dollar and the yen on Monday after data showing that the euro area fell back into deflation in February for the first time in five months cemented expectations for more central bank stimulus. EUR/USD touched lows of 1.0896, the weakest since February 2 down from around 1.0915 earlier. The drop in the euro came after Eurostat said the consumer price index fell 0.2% on a year-over-year basis after rising 0.3% in January. It was the first negative inflation figure since September, when consumer prices fell 0.1%, and is well below the European Central Bank’s target of close to but just below 2.0%. Economists had expected the annual rate of inflation to tick down to 0.1%. The fall was due in large part to falling energy costs, which were 8% lower in the year to February compared to the previous month’s 5.4% drop. Core inflation, which strips out energy costs, fell to 0.7% from 1.0% in January.

GBP/USD
The GBP/USD is flat today with no domestic data but Brexit possibilities grow. The pound is trading at 1.3963. The UK currency remained below $1.40 against the US dollar following a torrid week. The slump in sterling has been fueled by fears the UK could vote to leave the EU, dubbed ‘Brexit’, on June 23. Jack Row, global fixed income investment manager at NN Investment Partners, said the pound had already weakened 4-7 per cent due to the risk of Brexit and warned it could fall further.He said: “It is not easy to assess how much the weakness of GBP is due to Brexit risk. Correlations with the US dollar and the euro have destabilized and it is not straight-forward how cyclical developments, such as disappointing UK economic data and a more dovish stance by the Bank of England, can be disentangled from Brexit risk. But it seems fair to say that GBP is around 4-7 per cent weaker because of it.”